Essays On Financial Market Structure And Design
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Essays On Financial Market Structure And Design
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Author : Mr. Haoxiang Zhu
language : en
Publisher:
Release Date : 2012
Essays On Financial Market Structure And Design written by Mr. Haoxiang Zhu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
In this doctoral dissertation, I study financial market structure and design, namely how institutional features of financial markets affect price discovery, liquidity, search behavior, efficiency, and welfare. This dissertation consists of three chapters. The first chapter studies dark pools and price discovery. Dark pools are equity trading systems that do not publicly display orders. Orders in dark pools are matched within the exchange bid-ask spread without a guarantee of execution. Because informed traders tend to have common information regarding the asset value, they are more likely to cluster on the heavy side of the market and therefore face a lower execution probability in the dark pool, relative to uninformed traders. Consequently, exchanges are more attractive to informed traders, whereas dark pools are more attractive to uninformed traders. Under natural conditions, adding a dark pool alongside an exchange concentrates price-relevant information into the exchange and improves price discovery. The second chapter offers a dynamic model of opaque over-the-counter markets. I build a theoretical model of OTC markets, in which a seller searches for an attractive price by visiting multiple buyers, one at a time. The buyers do not observe contacts, quotes, or trades elsewhere in the market. A repeat contact with a buyer reveals the seller's reduced outside options and worsens the price offered by the revisited buyer. When the asset value is uncertain and common to all buyers, a visit by the seller suggests that other buyers could have quoted unattractive prices and thus worsens the visited buyer's inference regarding the asset value. This chapter is now published at the Review of Financial Studies, Volume 25, Issue 4, April 2012. The third chapter studies settlement auctions for credit default swaps (CDS). This chapter is the joint work with Songzi Du, a fellow Doctoral Candidate at the Graduate School of Business, Stanford University. We find that the one-sided design of CDS auctions used in practice gives CDS buyers and sellers strong incentives to distort the final auction price, in order to maximize payoffs from existing CDS positions. Consequently, these auctions tend to overprice defaulted bonds conditional on an excess supply and underprice defaulted bonds conditional on an excess demand. We propose a double auction to mitigate this price bias. We find the predictions of our model on bidding behavior to be consistent with data on CDS auctions.
Essays On Financial Market Design
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Author : Ayan Bhattacharya
language : en
Publisher:
Release Date : 2016
Essays On Financial Market Design written by Ayan Bhattacharya and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
The many financial crises of the last century-and most recently, the Great Recession of 2008 have highlighted the crucial role that market design can play in exacerbating or dampening a difficult economic situation. An important thrust of the economic discipline in recent years, therefore, has been to understand the merits and flaws in existing financial market designs in order to provide prescriptions for improvement. The three essays in my dissertation contribute to this undertaking. The first essay studies the effect of post-trade transparency reforms in overthe-counter markets. Contrary to received wisdom, I show that such reforms can hurt investors in many situations because potential counterparties may stay away from the market and monitor trades for information before participating, when there is transparency. This can lead to liquidity dry-ups and speculative prices for investors. The second essay is a joint study with Maureen O'Hara and explores the working of exchange traded funds (ETFs). When ETFs were first launched, they were a sideshow to underlying asset markets. Today, however, we have numerous ETFs on assets that are hard-to-trade otherwise. We demonstrate how inter-market information linkages in such ETF markets can lead to market instability and herding. The third essay, joint work with Gideon Saar, is a theoretical investigation of dynamic limit order markets with asymmetric information. This essay throws light on a vexing question in market microstructure-the use of limit orders by informed traders.
Essays On Technology In Finance And Market Design
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Author : SOOMIN. LEE
language : en
Publisher:
Release Date : 2018
Essays On Technology In Finance And Market Design written by SOOMIN. LEE and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
I develop information-based theoretical frameworks to (i) explain empirical patterns found in the finance literature, and (ii) provide empirical and policy implications related to recent changes in the technology and the market structure of financial markets. The first chapter explains how the over-the-counter market can coexist with easily acces- sible exchanges, and examines the US Dodd-Frank Act and the EU's MiFID II. The second chapter explains the recent trend of higher market quality, and reconciles the finding that high frequency traders increase liquidity with the finding that the HFTs reduce institutional traders' profits. The third chapter analyzes how transparency due to blockchain adoption may affect market quality.
Three Essays In Financial Market Structure
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Author : James Peter Weston
language : en
Publisher:
Release Date : 2000
Three Essays In Financial Market Structure written by James Peter Weston and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with categories.
Systemic Risk Institutional Design And The Regulation Of Financial Markets
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Author : Anita Anand
language : en
Publisher: Oxford University Press
Release Date : 2016-12-22
Systemic Risk Institutional Design And The Regulation Of Financial Markets written by Anita Anand and has been published by Oxford University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-12-22 with Law categories.
Following the recent financial crisis, regulators have been preoccupied with the concept of systemic risk in financial markets, believing that such risk could cause the markets that they oversee to implode. At the same time, they have demonstrated a certain inability to develop and implement comprehensive policies to address systemic risk. This inability is due not only to the indeterminacy inherent in the term 'systemic risk' but also to existing institutional structures which, because of their existing legal mandates, ultimately make it difficult to monitor and regulate systemic risk across an entire economic system. Bringing together leading figures in the field of financial regulation, this collection of essays explores the related concepts of systemic risk and institutional design of financial markets, responding to a number of questions: In terms of systemic risk, what precisely is the problem and what can be done about it? How should systemic risk be regulated? What should be the role of the central bank, banking authorities, and securities regulators? Should countries implement a macroprudential regulator? If not, how is macroprudential regulation to be addressed within their respective legislative schemes? What policy mechanisms can be employed when developing regulation relating to financial markets? A significant and timely examination of one of the most intractable challenges posed to financial regulation.
Essays In Mechanism Design And Market Design
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Author :
language : en
Publisher:
Release Date : 2014
Essays In Mechanism Design And Market Design written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
Full Implementation and Belief Restrictions' considers how information about agents' beliefs might be used to achieve full implementation, which aims to resolve the problem of multiplicity in mechanism design. We find that minimal knowledge about beliefs (described by moment conditions) can be used to reduce strategic externalities induced by the incentive compatible transfers by adding belief-based adjustments to the transfers. When strategic externalities are reduced to the extent that the best reply map becomes contractive, then uniqueness is achieved for a Delta-Rationalizability. We further show that (1) this result often obtains by very little information about agents' beliefs, therefore the uniqueness result holds for a large class of beliefs and (2) suitable moment conditions can be found in many economically interesting information structures, for example in quadratic smooth environments with independent or affiliated types. `Shared Information Sources in Exchanges' explores implications of heterogeneous information sources available to market participants -- due to regulation, choice or comes as a constraint. Traders in financial markets recognize that shared forecast services, differential access to information technology, targeted advertisement induce correlation in inference errors. We show that common information sources, seen as a departure from the private information acquisition assumption, qualitatively affect information aggregation and efficiency properties of markets. Even when traders' values are independent, inference from prices can be useful for learning about valuations. From a market design perspective, we show that imposing differential access to sources can improve informativeness, restricting participation to certain trading venues can be optimal. `Privacy-Preserving Market Design' is motivated by the increasing concern about revealing information on past trades, income, liquidity needs. With improved data collection, preserving privacy has become a de facto participation constraint in exchanges. We suggest an incentive-based approach by formulating a mechanism design problem to study the joint design of the allocation rule, bidding language, observable outcomes (prices, quantities at various levels of aggregation, and other statistics). We show that privacy-preserving market design is feasible, in that the publicly observable outcome is minimally informative about private information. In contrast to the view in the literature, there need not be a trade-off between privacy preservation and efficiency.
Money And The Market
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Author : Kevin Dowd
language : en
Publisher: Routledge
Release Date : 2013-12-16
Money And The Market written by Kevin Dowd and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-12-16 with Business & Economics categories.
Kevin Dowd asserts that state intervention into financial and monetary systems has failed, and that we would be better off if financial markets were left to regulate themselves. This collection will appeal to students, researchers and policy makers in the monetary and financial area.
Essays On Banking And Market Design
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Author :
language : en
Publisher:
Release Date : 2014
Essays On Banking And Market Design written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
This dissertation comprises an essay on banking and an essay on market design. The first essay integrates ideas from prior work in banking and information economics in order to investigate the private and social incentives for investment in structured finance products, which were at the heart of the financial crisis of 2007-09. The second essay evaluates the performance of a market design innovation by Ticketmaster in the primary market for event tickets.
Essays On Industrial Organization And Finance
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Author : Menghan Xu
language : en
Publisher:
Release Date : 2016
Essays On Industrial Organization And Finance written by Menghan Xu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
The dissertation consists of three essays on industrial organization with a particular focus on the structures of financial markets. The first chapter theoretically studies how search friction affects competition and resource allocation in crowdfunding loan markets, which are described using a many-to-one matching framework. Namely, competitive fundraisers must accumulate multiple investors to complete a transaction. I develop a dynamic matching model with a fixed sample search, a la Burdett and Judd (1983), in which fundraisers compete in interest rates while investors look for good investment targets. I highlight two important economic forces in the model. First, investors can only observe a limited number of quotes. Second, a surplus cannot be created until a fundraiser attracts contributions from enough investors. I show that in the presence of search friction, fundraisers implement mixed strategies to set interest rates in a unique stationary equilibrium, which results in rate dispersion even if the goods are homogeneous. Regarding resource allocation, I show that in the many-to-one market, rate dispersion creates an endogenous coordination mechanism among anonymous and independent investors, thereby making it easy for them to concentrate their investments. In other words, search friction improves allocation efficiency in a crowdfunding market compared with its perfect competition counterpart. Based on the theoretical framework constructed in the first chapter, the second chapter empirically studies the market structure of the crowdfunding market. I construct a novel data set based on a large panel of fundraisers' behaviors. Using reduced form analysis, I find evidence of persistent rate dispersion and funding mismatches, which are consistent with the theoretical predictions of the search model. I also show that the model is identifiable and can be estimated using a non-parametric approach, which allows me to measure the allocation efficiency. Regarding methodology, I demonstrate that it is sufficient to use projects' ranks to recover search friction primitives, which reduces the computational burden and increases the precision. The third chapter studies how the combination of adverse selection and moral hazard affects the design of financial contracts. Specifically, the chapter studies an optimal mechanism design problem,a la Mussa and Rosen (1978), in the presence of limited enforcement. In the study, the bank (principal) designs loan contracts to screen firms (agents) with unobserved productivities. Meanwhile, the bank cannot prevent the firm from consuming acquired funds without producing anything. The impediment of forming contracts creates an endogenous outside option for all borrowers. I show that in the optimal mechanism, loan sizes for higher types are decreased by ironing, i.e., by pooling on the top. In addition, the lower types produce at the second-best level. Moreover, I show that firms' participation is independent of the enforcement level.
Market Microstructure In Emerging And Developed Markets
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Author : H. Kent Baker
language : en
Publisher: John Wiley & Sons
Release Date : 2013-07-31
Market Microstructure In Emerging And Developed Markets written by H. Kent Baker and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-07-31 with Business & Economics categories.
A comprehensive guide to the dynamic area of finance known as market microstructure Interest in market microstructure has grown dramatically in recent years due largely in part to the rapid transformation of the financial market environment by technology, regulation, and globalization. Looking at market transactions at the most granular level—and taking into account market structure, price discovery, information flows, transaction costs, and the trading process—market microstructure also forms the basis of high-frequency trading strategies that can help professional investors generate profits and/or execute optimal transactions. Part of the Robert W. Kolb Series in Finance, Market Microstructure skillfully puts this discipline in perspective and examines how the working processes of markets impact transaction costs, prices, quotes, volume, and trading behavior. Along the way, it offers valuable insights on how specific features of the trading process like the existence of intermediaries or the environment in which trading takes place affect the price formation process. Explore issues including market structure and design, transaction costs, information flows, and disclosure Addresses market microstructure in emerging markets Covers the legal and regulatory issues impacting this area of finance Contains contributions from both experienced financial professionals and respected academics in this field If you're looking to gain a firm understanding of market microstructure, this book is the best place to start.